Will VoIP Peering Pose A Threat To The Interconnect Regime?

More From CompTel: Will VoIP Peering Pose A Threat To The Interconnect Regime?

The possibility that peering arrangements among Voice over Internet Protocol (VoIP) service providers threaten historical telephone company interconnect agreements as well as the regulatory regimes that govern them was raised last week during the Competitive Telecommunications Association (CompTel) convention and expo in San Diego.

A so-called “business track” session “Peering into the Future of VoIP” evoked a play on words, but it posited relatively serious and long-term implications for access charges, intercarrier compensation (ICC) and other mechanisms that have been used by local and long-haul telecom carriers to assess costs and distribute revenues.

And with the Federal Communications Commission still in the midst of considering a new ICC regime that presumably could take into account IP-enabled services, the growth of VoIP themselves – poised as a disruptive influence on traditional telephony – will take on added significance if VoIP peering prototypes and similar emerging partnerships develop alongside the traditional interconnection model.

Jim Dalton, CEO of TransNexus, characterized traditional public switched telephone network (PSTN) interconnect arrangements as a “calling party network pays” type of arrangement versus the peering model that essentially is considered a “bill and keep ” agreement in which no money changes hands. Types of bill-and-keep suggestions, in fact, are among the proposals being made in the FCC’s current ICC proceeding.

In looking at current interconnect business practices, methods and PSTN technologies, the regulations can perpetuate different types of inequities the industry and the FCC would like to correct. According to Dalton, under existing conditions, a competitive local exchange carrier (CLEC) might pay an ILEC about 2 cents per minute for interconnection while an interexchange carrier (IXC) might pay an ILEC about 2.5 cents per minute to use identical facilities. There also are interconnect fraud schemes in which LECs can garner higher fees from IXCs and route calls in such a manner to avoid payments to other CLECs.

Early IP bill-and-keep models included ISPs charged for Internet access and interconnected at public exchange points, but while the upside was no interconnect payments, the quality of service could collapse due to the free interconnection. Classic IP peering, according to Dalton, was used by large ISPs to bypass public exchange points, and the peering ISPs paid only for their peering costs, without any inter-ISP settlement payments. This also led to the so-called “transit” arrangements in which large and small ISPs interconnect. Small ISPs must pay to access or “transit backbone” IP networks, and IP interconnect fees are based on cost of access not usage.

Dalton predicted VoIP peering eventually will replace Signaling System 7 (SS7) interconnects based on the current SS7 standards and specifications. He said carriers over time will be in trouble if their businesses depend on the access charges or if they depend on free terminations of VoIP calls because market forces will drive access charges lower. “There’s no free lunch,” he added.

Future PSTN interconnect models will look more like the Internet peering model, according to Dalton, adding there are implications for interconnect access agreements on a worldwide scale (because of the increasing importance of IP backbones in meeting international and global account service and traffic demands). In addition, a market-driven interconnect rate system could evolve to govern pricing.

Dalton believes the regulatory trends accompanying the ascension of peering will include the concept of “property rights” among the companies participating in peering instead of the traditional regulatory-driven common carrier requirements surrounding ICC payments and access charges. This ostensibly means eliminating the mandate for common carrier interconnection and guarantee of access fees.

In an ominous prediction aimed at the universal service fund and high- cost support for rural carriers, Dalton also anticipates a new interconnection- to-peering migration will lead to “political subsidies” being paid by subscribers and not networks

No Surprises Here

He also pointed out that federal regulators are probably not strangers to these potential developments. A September 2004 white paper by senior FCC economists Jay Atkinson and Chris Barnekov, “A Coasian Alternative to Pigovian Regulation of Network Interconnection” explains current IP-peering market behavior, and it provides a proposed framework for regulating network interconnection that does not mandate interconnection or interconnect rates.

The potential impact of peering and bill-and-keep on USF reform also has been explored by the Intercarrier Compensation Forum (ICF) consisting of such IXCs as AT&T, Sprint and Level3 Communications. A U.S./Canada VoIP peering network prototype – with several Internet companies participating – has been developed by NeuStar Inc., a Sterling, Va.-based company with several types of third-party outsourcing businesses handling telco and cableco clients. In addition, a new company called Stealth Communications Inc. since late 2003 has been running what it calls a “voice-peering fabric” (VPF) that essentially operates what are known as carrier hotels, minutes markets and an IP address registry for members to swap traffic. Among its members are international VoIP wholesalers iBasis and Net2Phone as well as RCN and XO Communications, according to Shrihari Pandit, Stealth’s president and CEO.

Stealth, which is sponsoring a voice-peering forum in Miami this week, is projecting about 45 billion minutes of use this year, compared with 18 billion in 2005 and 2.4 billion in 2004. Pandit said the current geographical mix is about 80 percent for North America, 15 percent for Europe and 5 percent for the Asia/Pacific Rim region.

Don MacNeil, vice president of carrier services operations at XO, suggested peering is far easier, more efficient and has less regulatory requirements for carriers to handle, applicable to back-office routines, assessing costs and charges, and operational support issues.

A highly automated system for mapping IP addresses, domain names and telephone numbers (known internationally as ENUM) is a key tool for implementing VoIP peering activities and is somewhat analogous to how local number portability (LNP) currently works, according to MacNeil.

[Copyright 2006 Access Intelligence, LLC. All rights reserved.]

COPYRIGHT 2006 Access Intelligence, LLC.

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